Why Foxtel fears neither NBN

Conspiracy theorists are arguing, with success, that Labor's NBN is anathema to News Corporation's Foxtel interests. Yet the Coalition version will be able to carry multiple HD video downloads, too.

It’s rather amusing that what had been a chat room and bloggers’ conspiracy theory that News Corporation’s papers were critical of Labor’s national broadband network because of its interest in Foxtel has found its way into the mainstream of the election campaign.

Indeed, Foxtel itself felt compelled to issue a statement saying it welcomed the deployment of broadband networks today after Kevin Rudd asked whether Rupert Murdoch sensed a commercial challenge to Foxtel, the "major cash cow for his company".

At the weekend Fairfax columnist Paul Sheehan postulated that the campaign against the Rudd government by News’ papers was because Murdoch believed Foxtel was threatened by the NBN. Long before then advocates of Labor’s fibre-to-the-premises network had made the same connection.

Murdoch himself tweeted earlier this week on the topic.

"Oz politics! We all like ideal of NBN, especially perfect for Foxtel. But first how can it be financed in present situation?"

As a conspiracy theory it sounds good but doesn’t stack up.

Indeed, Malcolm Turnbull demolished it in his blog at the weekend when he made the obvious point that the Coalition, too, plans to build a national broadband network, albeit fibre-to-the-node rather than fibre-to-the-premises.

As he said, the Coalition’s NBN would be built faster and more cheaply than Labor’s and, with minimum speeds of 25 mpbs and most services getting access to 50 mbps or more) its NBN would be easily able to carry multiple HD video downloads.

If anything, because wholesale prices would be lower and therefore retail prices would be, too, it would be far more of a threat, and an earlier one, to Foxtel than Labor’s NBN.

The reality is that Foxtel has known for a long time that it could face competition from IPTV services and that the threat would be exacerbated by the construction of any form of NBN.

It has been locking up movie and sports content and doing deals like the one it agreed with HBO last year, under which it can offer movies within 24 hours of their original screening in the US.

The NBN, of either kind, will, as Turnbull noted, give the owners of key sports content the ability to sell directly to the consumer but that would involve an enormous investment in production, distribution and subscription management platforms, as well as the various support services needed to go direct to consumers.

What Foxtel has going for it is its financial muscle, its existing infrastructure and the subscriber base on it, its massive store of content and its experience in subscription TV in this market. Its parentage – Telstra and News – gives it access to resources and the knowledge and relationships within News’ global pay TV business. It has also already launched mobile and IPTV products even before the NBN has been built.

At present the Foxtel offer is carried on Telstra’s HFC cable and copper networks in urban areas and delivered via satellite elsewhere.

If Foxtel itself had its druthers it would have moved to all-satellite delivery long ago rather than paying Telstra a handsome fee every time it puts a subscriber onto the HFC network. It would be a lot more profitable.

From Foxtel’s perspective – and News', because its interest is in Foxtel and not the HFC cable – the NBN would be just another way to distribute its content and one that could create some opportunities for both Foxtel and Telstra if, as Telstra becomes purely a retailer of telecommunications services, it uses the opportunity to create a bundle of NBN-delivered services that includes Foxtel. Whichever NBN is built it knows it could face more competition.

News Corp’s papers don’t have to have a commercial agenda to be critical of the process that led to the concept of Labor’s NBN, or of its costs or the execution of the rollout.

There are plenty of people (this columnist included, long before News Corp acquired Business Spectator last year) who think the absence of any meaningful analysis of the costs and benefits of the NBN before Rudd and Stephen Conroy committed to it was and remains worthy of criticism.

The problem-plagued and way-behind-schedule rollout is also worthy of critical scrutiny, as is the reality that most of the tens of billions of dollars that would be spent building it would be incurred in connecting ordinary households that would have no economically justifiable need for anything beyond the speeds a fibre-to-the-node network would deliver at substantially lower costs to taxpayers and consumers.

The NBN epitomises much that has been wrong with the Rudd-Gillard-Rudd government. It is a very big and shiny idea embarked upon with very little analysis, little if any regard to cost or the fiscal context and has been poorly executed. There doesn’t have to be a commercial agenda to motivate its critics.

Foxtel is part-owned by News Corporation, publisher of Business Spectator.